The taxpayer contributed significant sums to his TFSA in 2020. In December 2020, CRA corrected their records and reduced his TFSA contribution room by $20,000 in reliance on a CRA statement that overstated his contribution room by $20,000. CRA did not inform the taxpayer of his overcontribution until sending a TFSA notice of assessment in July 2021. However, the taxpayer had discovered the error when filing his taxes for the 2021 taxation year, and withdrew $29,000 in April 2021. In May and July 2021, he then contributed $6,133 to his TFSA. Given that the “excess TFSA amount” definition in s. 207.01(1) only provided a reduction for distributions made in the preceding calendar year, these additional contributions were not offset by the excess $9,000 amount of the distribution made to him earlier in the year.
The final CRA decision letter responding to the taxpayer’s request for review of the CRA decision to impose tax under s. 207.02 (including an assessment of his 2021 taxation year) indicated that excess contribution amounts had not been withdrawn following the July 20, 2021 assessment until November 2021, so that the removal of the excess contributions did not occur within a reasonable time frame – but provide no explanation as to why the $9,000 excess withdrawal in 2021 did not offset the further 2021 contributions.
After noting (at para. 24) that “this Court has accepted that the Minister has applied his discretion to define “without delay”
as within 30 days of being aware of the over-contribution,” Aylen J granted the application for judicial review, stating (at paras. 29, 32):
[The] rationale for not “crediting” the Applicant for the $29,000.00 withdrawal (which amount was more than the excess contribution) in April of 2021 (which was within the 30-day window) appears nowhere in the decision. The decision provides no explanation whatsoever as to how the CRA determined that the excess contribution was only remedied on November 30, 2021 … .
… I find that the decision regarding both the 2020 and 2021 taxation years is unintelligible and lacks justification and transparency. As a result, the application for judicial review shall be granted.
Aylen J also intimated that the explanation of the Justice lawyer as to the rationale of CRA (not articulated by it in its decision), which was based on the “unused TFSA contribution room” definition (rather than the “excess TFSA amount” definition) was difficult to follow.